Brent crude could spike to $150 a barrel over Syria: SocGen

When oil prices are on a roll, a Middle Eastern conflict is usually not far away. And it\’s no different this time, with Syria in the driver\’s seat of a fast-moving climb for prices of WTI crude
and Brent oil
.

Brent rushed to $117 a barrel before backing off on Wednesday. WTI crude topped $112 at one point.

But could Brent reach as high as $150-a-barrel? That\’s not entirely impossible, says Societe Generale analyst Michael Wittner.

In a note published late Wednesday, addressing oil and the conflict, Wittner says he expects Brent to reach $125 a barrel in the coming days, \”either in anticipation of the attack or in reaction to headlines that an attack had started.\” This assumes an attack on Syria by the U.S. and key allies begins in the coming week (SocGen sees no move by before the weekend).

\”If it takes longer, and there are no signals that an attack is imminent, the oil price uplift from the entire Syrian situation will start to fade. Our base-case scenario does not include any actual supply disruptions resulting from the U.S.-led attack on Syria,\” says Wittner.

Where Wittner thinks Brent has a shot at $150 is if the regional spillover causes a significant supply disruption in Iraq or elsewhere — from 0.5 to 2 million barrels a day. Under this scenario, Brent could \”spike briefly to $150,\” with markets then turning to Saudi spare capacity, which is 1.7 million barrels a day, but could rise to 2 million barrels a day as output eases off after the summer.

\”The Saudis could handle most likely scenarios, but the markets would look at the shrinking spare capacity that remains after any disruption is made up, and that would be bullish,\” he says.

However, Wittner also gives reasons to believe price surges and spikes wouldn\’t last:

A negative impact on GDP and oil demand, with demand destruction visible, would be seen within a couple of months.

Saudis would use spare capacity to pump more oil and make up for any disruption, cooling off prices.

IEA countries would release strategic oil reserves, depending on the price and severity of any disruption. These countries would be particularly concerned with protecting the fragile economic recovery, which has only recently been gathering momentum in a sustainable fashion.

Wittner and his team are sure of one thing: the U.S. and its allies will be taking some sort of action soon, likely next week.

\”The talk from the U.S. and others has been so tough that, at this point, the option not to attack does not exist any longer. The U.S. would be seen as very weak for not keeping its word and doing what it said, and this has very important ramifications for other countries and problems in the region, including the Iranian nuclear issue,\” he says.

The kind of attack that makes most sense, and is most likely, is a brief two-day surgical cruise missile attack to punish Syria and deter it from further chemical-weapon use, he says. And at the same time, it would prove to the world that the U.S. keeps its word. Such a move would keep the U.S. and its allies out of a broader civil war and from supporting some of the most-effective fighters in this conflict, the hard-line Islamists.

But then again, says Wittner, leaks from U.S. officials could all be aimed at some sort of \”disinformation campaign,\” to fool the Syrian authorities, when in fact a more severe option may be being planned. For example, this could be establishing a no-fly zone to protect rebel forces and civilians, as in Libya two years ago, or a longer air campaign aimed at dismantling Syria\’s Air Force.

The White House reportedly will publicly release evidence of how Syria used those chemical weapons, perhaps as soon as Thursday, to help drum up public support for any strike.

Here\’s another view on where oil prices could go from Ishaq Siddiqi, market strategist at ETX Capital, with a potential Fed twist. He says a Western strike against Syria could get other nations involved, particularly Iran, and \”easily engulf\” the entire Middle East, which remains a mess — think Egypt, disruptions to Libya\’s oil fields by protesters and sectarian violence in Iraq.

\”Once filtered through to the real global economy, the increase in oil prices will put a halt to the current pace of economic momentum we are currently experiencing in major parts of the world. It’s plausible that Brent oil prices could be over $120.00 p/b in the coming days — and, if oil prices spike even higher [above $130 p/b], it wouldn’t be out of the question for the Federal Reserve to hold off on tapering stimulus measures this year,\” says Siddiqi.

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